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Determining The Amount Of Business Loan You Need

15 November, 2018

In your line of operating your business, it inevitable that you have taken a business loan or at least thought of taking one to offset any business need. As much as a business loan can help you grow in countless ways, it may also bring your business down if you don’t plan for it well. One of the common mistake business owners make when taking a business loan is not determining the amount of loan to take. This can be a costly mistake. Below are some of the ways you can use to determine the amount to spend.

 Knowing your limits

You should be able to know the amount you are allowed to borrow, and the limit should be reasonable. This should be strictly adhered to as much as possible. For you to do this, you need to clearly know the amount of capital you need. Even if you are allowed to borrow way above the money you need, you should restrain from borrowing more.

Finding out the impact of the business loan on your projections

This is very crucial before taking a business loan. The main purpose of taking a business loan is to improve any part of your business. This means the loan should have a positive impact on your business projections and it should be worthwhile. You should find out the amount of profit you will make when you take the business loan after factoring in the loan costs. Also, you should find out if the more you borrow, the higher the profits. Making such calculations will ensure that you come up with an optimal amount of business loan you can take that will give your maximum business profits after the loan costs are factored in.

How you will spend the money

This can be a breaking point if you are not careful. You should be able to clearly define what you want to do with the business loan way before you apply for the loan. Is the loan for buying new equipment? Is it for marketing? Is it for hiring urgently needed staff? Is it for business expansion? Whatever it is, you should clearly articulate how you plan to spend the business loan. By doing so, you will entice the lending institution into giving you the loan and the correct amount. It will also help you the amount of business loan you need to borrow.

Do a research

Currently, there are numerous loan options available in the market. The options have different requirements and repayment plans. They also have different loan limits. A little but good research will enable you to pick the best business loan option that best suits your financial needs. You should be careful not to be enticed into taking a higher amount of business loan than you require as this may bring your business down in no time. Your business loan option must have favourable terms and repayment terms that best fits your business financial plan.

Your future financing needs

Before taking a business loan now, think of your future as a business if you will need another loan. If say you may need another loan to say venture into new markets, then that will determine the amount of business loan you can borrow. In such a case you may opt to go for a small loan now which you can repay before then. If you don’t need a loan in the near future, then you can go for a higher amount of loan which you can repay comfortably.

Business loan costs

You should be able to know all the costs involved in borrowing a business loan. These ranges from interest rates to any other charges that may apply and the cumulative amount you will need to repay when all said and done. Knowing all these will help find out the exact amount of business loan you need to take and more so from which lending institution.

Taking a step back

Taking a business loan is, in fact, a huge step in business as you enter into an agreement. The agreement is binding, and if the terms are not well thought through, it can bring your business down in record time. This means that you should think things through as a business owner before you commit yourself to a business loan. The business loan must have favourable terms in order to make it comfortable for you to repay. Also, the loan should make you more money than the amount to be repaid. The loan should also be just the right amount for it to be useful. Borrowing too much or too little will cost you a big deal in the long run as it commits the finances of the business which could be utilised elsewhere. Therefore, taking a step back will help you as the business owner to the exact amount of business loan to borrow before you commit yourself.

 

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